Managing living expenses with a budget

Young woman sitting on her living room floor, cup of coffee in hand, laptop open, working on managing her living expensesImage: Young woman sitting on her living room floor, cup of coffee in hand, laptop open, working on managing her living expenses

In a Nutshell

Learn how you can budget for living expenses and how you may be able to cut costs if needed ... and explore ways to make extra income.
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Accounting for living expenses is an important step in learning how to create a budget. Living expenses are a part of adulthood, but knowing how much basic expenses cost can help ensure you’re prepared to tackle them.

You’ll also want to prepare for the unexpected. For example, your income might be lower than expected, while some expenses may be higher than anticipated. You may run into financial trouble or even debt without a solid budget.

That’s why we put together this guide to living expenses — both the expected and unexpected. We’ll cover what’s considered a living expense and how much you may need. We also provide tips on how to reduce your monthly living costs.

What is a living expense budget?

A living expense budget is a financial plan to cover the costs of daily life and basic living, such as rent and groceries. It can also help you if you’d like to reduce your spending.

Cost of living varies by state, but you can use a cost of living calculator to get an idea of how much it may cost to live in other areas. Before making big lifestyle changes (such as moving), it can be helpful to understand cost of living differences. 

What is a living expense?

Living expenses are expenditures necessary for basic daily living and maintaining good health. They include housing, food, clothing, healthcare and transportation. 


Whether you rent or own, there are regular expenses, including some you may not be aware of.

  • Mortgage payment or monthly rent
  • Utilities (i.e., electricity, gas or trash removal)
  • Insurance (i.e., homeowners or renters)
  • Property tax
  • General maintenance (i.e., lawn mowing or snow removal)

Food and grocery

Besides your daily meals, consider other living necessities.

  • Beverages
  • Personal care items (i.e., shampoo, toilet paper, etc.)
  • Cleaning supplies


From your work clothes to pajamas, budget for everyone in your family.

  • Daily clothing
  • Formal wear
  • Undergarments
  • Shoes and coats


Remember to include expenses for your primary doctor, dentist and other specialists — including your veterinarian.

  • Insurance premiums
  • Office copays
  • Pharmacy copays
  • Over-the-counter items


Depending on whether you drive a car or use public transportation, add up your regular transportation costs.

  • Car payment
  • Car insurance
  • Gas
  • Public transportation tickets
  • Taxi costs
  • Parking fees

What is not considered a living expense?

What about discretionary expenses?

While there are likely other recurring costs in your life, they might not be considered a living expense. These expenses are called discretionary costs, including things like recreational activities and entertainment. Including debt repayments (such as a student loan) in your discretionary spending budget is also a good idea.

As you break down your discretionary expenses, you may find areas where you can cut back on spending if your budget requires it. Some other costs that are not considered living expenses include …

  • Pet costs
  • Personal care (i.e., haircuts) 
  • Holiday gifts
  • Birthdays
  • Donations

How much of my income should I spend on living expenses?

Based on your salary and the cost of living in your city, the amount you spend on living expenses will vary. 

The 50/30/20 rule offers a basic financial strategy for spending and saving. The rule says that you should budget …

  • 50% of your income for your living expenses, like your rent and car payment 
  • 20% of your income for savings, whether that’s for a rainy-day fund or a down payment on a house 
  • 30% of your income for personal expenses like a night out with friends or a weekend getaway

Because the 50/20/30 rule is a guideline, there is some flexibility. You can adjust the percentages based on your unique circumstances.

What if I don’t make enough to cover all living expenses?

It may be hard to afford the cost of living, especially if you’re in an entry-level job or live in an expensive city. Some people use creative ways to make their budgets work. 

Get a side job

Besides trimming your expenses, consider earning extra money in your free time. Working a few nights as a server, babysitter or Uber driver might add up to a nice amount of extra cash.

There are many ways to make money at home if you want to earn some additional income but don’t necessarily want to leave the house. 

Seek a salary increase

If you’re struggling to cover all your living expenses, you may want to consider asking for a raise. If you can’t get a raise at your current job, you may want to try looking for a new job in the same field where you can get a salary bump. 

There are also many high-paying jobs that don’t require a degree.

Cutting expenses to fit your budget

There are numerous ways to save money that may require lifestyle changes. Here are some ways you may be able to cut down your living expenses in each major category so that you can feel more financially secure:


  • Consider having a roommate to split costs if living on your own is too expensive
  • Reduce your utilities by being mindful of water and electricity consumption
  • Move to a smaller, less expensive location
  • Buy fewer things
  • Estimate your rent budget to determine how much you can realistically afford to spend on rent each month

Food and grocery

  • Scale back on eating out
  • Plan your meals to stretch your food budget
  • Limit trips to the coffee shop
  • Buy in bulk
  • Purchase store brands 


  • Shop at consignment stores or online marketplaces
  • Build a capsule wardrobe
  • Reduce unnecessary purchases


  • Buy over-the-counter or generic brands
  • Check to see if your employer offers flex spending or a health savings account 


  • Shop around for a better car insurance rate
  • Consider selling your car if you live in a city with great public transportation
  • Buy a used car instead of a new one
  • Use a gas rewards credit card
  • Try carpooling


  • Downgrade your cellphone service plan
  • Use coupons and coupon codes
  • Shop at discount stores

Preparing for possible living expense adjustments

Some living expenses, such as your monthly rent, may be fixed and won’t change often. Other expenses are adjustable, such as food and clothing. That means your spending and savings might differ from month to month, and that’s OK. Having a budget is about preparing for what may come your way. 

To execute your plan, revisit your budget monthly and make any necessary adjustments. For instance, you may realize you need to allocate more for groceries and less for transportation. Life changes, and so can our budgets.

What’s next: Make your budget

Now that you understand what living expenses are and what they mean for your budget, the next step is to sit down and create your budget.  
There are various ways you can go about creating a budget. You can use a monthly budget template, the envelope budgeting method or even the 50/30/20 rule. Try a method that speaks to you, and adjust your plan if needed.